I’m in the process of enrolling benefits for a new job. Can someone explain an hsa account and how that money can be invested? Everything I have read says to max out your hsa and invest the unused over portion. How does that work?
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There’s a school of thought that you should use an HSA as a long-term investment account instead of a way to cover some portion of medical expenses on a pre-tax basis. Fully fund it every year and don’t take withdrawals. Let that money sit in an investment account and grow tax-free, and then when you retire, you can use that money to pay medical expenses so that you won’t have to pay taxes on any withdrawals. You can use the account to invest in lots of different funds, and you may have other investment options depending how the account is set up.
This approach assumes you have sufficient income to cover medical expenses without dipping into your HSA for the next several decades. It also disregards the fact that when you pay medical expenses with post tax dollars, you are paying somewhere around 25% premium for those expenses versus using pre-tax dollars. It might make sense to do that because generally medical expenses are low when you’re younger and increase as you age, but it’s worth running the numbers to see how much of a benefit it really is.
TLDR: An HSA account is a way to save money for medical expenses in a tax-advantaged way. You need a high-deductible health plan to open one. You can contribute up to a certain limit each year and use the money for various medical costs. You can also invest the money and keep it for the future.
An HSA account is a **health savings account** that lets you save money for medical expenses in a tax-advantaged way.
You can only open an HSA account if you have a **high-deductible health plan (HDHP)**, which is a type of health insurance that has a higher deductible than a regular plan.
You can contribute money to your HSA account from your paycheck or from other sources, up to a certain limit each year. For 2022, the limit is **$3,650** for an individual and **$7,300** for a family. If you are 55 or older, you can add an extra **$1,000** as a catch-up contribution.
The money in your HSA account is not taxed when you put it in, when it grows, or when you take it out for qualified medical expenses. This makes it **triple tax-advantaged**.
You can use your HSA account to pay for things like copays, prescriptions, dental care, vision care, and more. You can also use it for over-the-counter medications and some other health products without a prescription.
You can invest the money in your HSA account in mutual funds or other options, depending on your provider. This can help your money grow over time and provide more savings for the future.
The money in your HSA account is yours to keep. It does not expire or go away at the end of the year. You can also take it with you if you change jobs or retire.
If you enroll in Medicare, you cannot contribute to your HSA account anymore, but you can still use the money for qualified medical expenses.
An HSA is a health savings account. It’s a special bank account that you can put money in before taxes, saving you a lot of money compared to normal savings accounts. The catch is that the money can only be used on medical expenses. The assumption is that people will spend a lot more on medical issues later in life, so by maxing out your HSA while you’re young, it allows you to maximize your tax-free benefit and avoid paying for medical care with taxed money in the future. With an HSA, the money is always there, so if you don’t use it when you’re younger it will still be waiting when you retire.
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